employee retention credit Explained: The Secret to Reducing Turnover and Saving Money
employee turnover can be a significant challenge for organizations, resulting in increased costs, decreased productivity, and lost institutional knowledge. According to a study by the Society for Human Resource Management, the average cost to replace an employee is 6-9 months of their salary. This can add up quickly for businesses, especially in industries with high turnover rates such as retail, hospitality, and healthcare.
One solution that many businesses are utilizing to combat turnover and save money is the employee retention credit (ERC). The ERC is a tax credit introduced by the CARES Act in 2020 to provide financial support to businesses affected by the COVID-19 pandemic. However, it has since been expanded and extended to encourage businesses to retain employees during the economic recovery.
The ERC is a refundable tax credit that allows eligible employers to claim up to $7,000 per employee per quarter for 2021. This credit is available to businesses that experienced a decline in gross receipts or were subject to government-imposed restrictions due to the pandemic. Qualifying employers can claim the credit against their share of Social Security taxes, and any excess credit can be refunded to the employer.
The ERC can be a powerful tool for businesses to reduce turnover and save money in the long run. By providing financial support to businesses that retain employees, the ERC incentivizes employers to invest in their workforce and avoid the costs associated with turnover. This can include recruitment expenses, training costs, and the loss of productivity during the onboarding process.
In addition to the financial benefits, the ERC can also improve employee morale and loyalty. When employees see that their employer is taking proactive steps to retain them during challenging times, it can strengthen their commitment to the organization and reduce the likelihood of seeking employment elsewhere.
To take advantage of the ERC, eligible employers can work with their tax advisors or payroll providers to calculate and claim the credit. It’s important for businesses to understand the eligibility requirements and documentation needed to support their claims. Employers should also stay informed about any updates or changes to the ERC, as the program continues to evolve in response to the ongoing impacts of the pandemic.
In conclusion, the employee retention credit can be a game-changer for businesses looking to reduce turnover and save money. By providing financial support to employers that retain their workforce, the ERC encourages businesses to invest in their employees and avoid the costly effects of turnover. Whether it’s through tax savings or improved employee morale, the ERC offers a valuable opportunity for businesses to strengthen their bottom line and build a more resilient workforce.